Modeling Methodology

Aurora is specifically designed to model wholesale electricity prices in a competitive energy market. At any given time, prices should be based on the marginal cost of production. Prices will rise to the point of the variable cost of the last generating unit needed to meet demand. One of the principal functions of Aurora is to estimate this hourly market-clearing price at various locations, including North America and Europe.

Aurora uses a fundamental approach to estimating prices, which reflects the economic and physical characteristics of supply and demand. Aurora estimates electricity prices using hourly demands and individual resource-operating characteristics in a transmission-constrained, chronological dispatch algorithm. The operation of resources within the electric market is modeled to determine which resources are on the margin for each zone in any given hour.

The North American database includes zone definitions for all of the NERC reliability regions. The Aurora database includes long-term average demand and hourly demand shapes for all the areas in the database. These demand areas are connected by transmission links with specified transfer capabilities, losses, and wheeling costs.

Existing supply-side generating units are defined and modeled individually; specifying several cost components, physical characteristics, and operating constraints. Hydro generation for each area, with instantaneous maximums, off-peak minimums, and sustained peaking constraints are also input. Demand-side resources and price-induced curtailment functions are defined, allowing the model to balance generation use against alternatives to reduce customer demand.

Aurora takes this information and builds an economic dispatch for the markets. Units are dispatched according to variable cost, subject to non-cycling and minimum run constraints until hourly demand is met in each area. Transmission constraints, losses, wheeling costs and unit start-up costs are reflected in the dispatch. The market-clearing price is then determined by observing the cost of meeting an incremental increase in demand in each area. All operating units in an area receive the hourly market-clearing price for the power they generate.

Also, Aurora can simulate the addition of new-generation resources and the economic retirement of existing units. It chooses new units from a set of available supply alternatives with technology and cost characteristics that can be specified through time. New resources are built only when the combination of hourly prices and frequency of operation for a resource generate enough revenue to make construction profitable; that is when investors can recover fixed and variable costs with an acceptable return on investment. Aurora uses an iterative technique in these long-term planning studies to solve the interdependencies between prices and changes in resource schedules.

Existing units that cannot generate enough revenue to cover their variable and fixed operating costs over time are identified and become candidates for economic retirement. To reflect the transition timing to competition across all areas, the rate at which existing units can be retired for economic reasons is constrained in these studies for several years.

See the Aurora Modeling Flow Diagram for visual representation of this logic.

In summary, to simulate the economic dispatch of resources to meet demand requirements Aurora:

Solves the whole system dispatch simultaneously.
Dispatches hourly (with sampling capabilities, where appropriate).
Determines the market-clearing prices from marginal costs.
Values all the resources in the system.
Provides price and value forecasts for each time period being studied.

Simulation Logic

Modeling Methodology